Cost of corruption is higher than we can afford

Bribery and corruption continue to occupy a dominant position in our society and our press. This ranges from so-called petty bribes to traffic officials to significant amounts paid as “commissions” for securing tenders. While the amounts may differ - whether R100 or R1 million - the nature of the action is not different. It all amounts to bribery and corruption.

The benefits are generally very evident. The bribe to the traffic official avoids a fine or, worse, avoids being jailed, and the tenderpreneur is awarded a lucrative tender.

But what’s the real, full cost of bribery and corruption?

A fall in share price is an obvious cost - as MTN experienced in March this year when Turkcell filed a $4.2 billion suit against them for allegedly bribing officials to win an Iranian licence.

However, as the share price bounced back quite quickly, it could be argued that this doesn’t matter so much. But that argument doesn’t hold when the incident also affects perceptions of the company’s reputation. Reputational damage can last much longer than a mere few days that the share price takes to recover, and it can be very destructive for individuals and organisations. Lance Armstrong is a current high profile example.

Unethical conduct is often associated with financial costs, such as the fines imposed by the Competition Commission on companies guilty of collusive practices. Fraud and unauthorised trading led to UBS, the financial services company, suffering a $2.3 billion loss in September 2011 –to which has been added a $47.6m fine for not managing their systems adequately.

Individuals found guilty of corruption have in some cases not only lost their jobs, but have also lost their freedom following jail sentences. Jackie Selebi is a noteworthy example. He lost his job as National Police Commissioner and was jailed for 15 years in December 2011 for corruption - except he served only 229 days of his sentence!

A significant consequence of bribery and corruption is that it adds to the cost of doing business - but, crucially, without adding corresponding value. Instead of the full contract amount going towards the delivery of the product or service, only a portion is productively employed. This can, in turn, have undesirable consequences such as eroding quality when inferior building materials are used.

Corruption can also compromise access to work and subvert the business principle of “the best person for the job”. Instead of the tender being awarded on merit to the contractor who has the necessary competence and experience, it is given to those who pay the bribe. This can incur an additional expense to correct non or partial delivery of the work and poor workmanship. And it also impacts those for whom the products or service was intended, whether hospital patients, school children, new homeowners or road users, who effectively “share” the negative consequences.

A further cost relates to leadership. When high profile leaders are involved in bribery and corruption, their impact as role models is very damaging. The message is not only that unethical and illegal behaviour is acceptable, but also that the pursuit of personal gain takes precedence over service delivery. This risks creating an unethical culture among employees or citizens where such “lowest common denominator” behaviour predominates.

At a national level, bribery and corruption also risks tainting the country’s reputation. This an have serious consequences, such as reduced foreign investment, decreased tourism and the loss of our top talent to other countries.

All these costs cumulatively contribute to a legacy cost - and this is a cost which can linger and cast a shadow over an individual, an organisation or a government long after the event. Serious ethical failure such as corruption tends to overtake other achievements so that they are remembered for their ethical failure rather than any successes.

These costs and consequences illustrate not only why ethics matters, but also that the cost is really high - far higher than an organisation or the country should consider affording.

By Cythia Schoeman
Published in The Star & Pretoria News Workplace, 5 December 2012
Posted on IOL on 6 December 2012